These 3 Dividend Stocks Make a Strong Case for Skipping XLP
XLP holds dozens of consumer staples names, but a handful of its biggest positions tell completely different stories about yield, growth, and value that the ETF quietly blurs together.
The Consumer Staples Select Sector SPDR Fund (NYSEARCA:XLP) is the default parking spot for investors who want defensive exposure, a decent dividend, and the comfort of household-name brands. It has done its job in 2026, gaining 11.39% year to date through August 28, and its $13.6 billion in net assets confirms how widely held it is. But once you look inside XLP, the case for owning three of its biggest positions directly, rather than the wrapper around them, gets hard to ignore.
What You Are Actually Buying Inside XLP
XLP is a market-cap-weighted basket of roughly three dozen U.S. consumer staples names. Its top disclosed holdings, as of June 30, 2026, are Walmart at 10.80%, Costco at 9.03%, Procter & Gamble at 7.43%, Coca-Cola at 6.85%, and Philip Morris International at 6.13%. Altria sits at 4.53%. The rest is a long tail of Clorox, Hormel, Brown-Forman, and other names doing very little for either yield or growth.
That tail is the problem. The ETF’s blended yield lands near 2.5%, dragged down by low-yielding retailers like Costco and by struggling packaged-food names. If your goal is defensive income, you are paying to own dozens of positions that dilute the two things staples investors actually want: fat, growing dividends and durable pricing power.
Coca-Cola: Growth the ETF Cannot Match
Coca-Cola (NYSE:KO | KO Price Prediction) is up 29.98% year to date, nearly triple XLP’s return. The second-quarter report drove it: adjusted EPS of $0.97 beat estimates by 4.04%, revenue rose 6.7% year over year, and global unit case volume grew 5%. Management then raised full-year guidance to organic revenue growth of roughly 5% and comparable EPS growth of 9% to 10%.
The dividend just stepped up to $0.53 quarterly, an annualized $2.12 forward payout, extending a streak that stretches back six decades. Yield of 2.34% is close to XLP’s blended yield, but you get it alongside double-digit earnings growth. XLP holders get the same Coke exposure diluted seven-to-one.
Procter & Gamble: The Dividend King Discount
Procter & Gamble (NYSE:PG) is the opposite story: up only 2.53% year to date and down 4.95% over the past year. That underperformance has pushed the yield to 2.98% and the forward P/E down to 20, a rare discount for a company that just paid its 70th consecutive annual dividend increase.
FY2026 free cash flow reached $15.84 billion, up 12.74%, and management plans roughly $10 billion in dividends and $5 billion in buybacks in FY2027. The organic sales guide of 1% to 3% is soft, which is exactly why the stock is cheap. Owning PG directly at 20x forward earnings, with a 3% yield, is a better value than owning it inside XLP at the same price.
Altria: The Yield That XLP Cannot Deliver
Altria Group (NYSE:MO) yields 6.27%, trades at a forward P/E of 12, and just raised its quarterly dividend to $1.11, extending a growth record spanning 56 years. Altria has returned nearly $3.9 billion to shareholders through dividends and buybacks in the first half alone, and narrowed 2026 adjusted EPS guidance to $5.61 to $5.72.
Because MO is only 4.53% of XLP, its 6%+ yield contributes almost nothing to the ETF’s payout. Owning MO directly is the only way to capture it. Domestic cigarette volumes fell 3.2% in Q2, and the smoke-free transition through On Plus and NJOY is still unproven. This is a yield with regulatory risk attached, which is why it belongs as a slice, not the whole plate.
Weighing the Swap Against Your Situation
A KO/PG/MO blend delivers a yield well north of 4%, three of the longest dividend growth records in the market, and zero expense ratio, while still capturing the franchises that drive most of XLP’s return anyway (we ranked ten companies with 50+ year raise streaks by valuation in a free Dividend Kings report if you want to see which staples still look cheap here). You give up Walmart and Costco exposure, accept single-stock risk, and take on Altria’s regulatory overhang.
In a taxable account, selling XLP could trigger capital gains, so a partial swap (keeping the ETF and adding the three names) may make more sense than a full switch. In an IRA, the transition is frictionless. If you own XLP mainly for income and pricing-power stability, this trio is worth putting on the table before your next dividend reinvestment.
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Chris Lange is a writer for 24/7 Wall St., based in Houston. He has covered financial markets over the past decade with an emphasis on healthcare, tech, and IPOs. During this time, he has published thousands of articles with insightful analysis across these complex fields. Currently, Lange's focus is on military and geopolitical topics. Lange's work has been quoted or mentioned in Forbes, The New York Times, Business Insider, USA Today, MSN, Yahoo, The Verge, Vice, The Intelligencer, Quartz, Nasdaq, The Motley Fool, Fox Business, International Business Times, The Street, Seeking Alpha, Barron’s, Benzinga, and many other major publications. A graduate of Southwestern University in Georgetown, Texas, Lange majored in business with a particular focus on investments. He has previous experience in the banking industry and startups.
